Years from now we’ll look back at today as the day the stock market became a video game, replete with a cast of characters and a storyline to compete with the best of them.
To be sure, it didn’t happen overnight. It’s been slowly building towards gamification since the start of the pandemic. Stuck at home and flush with stimulus cash (with nowhere to put it – 0% rates, etc., etc.), the stock market was the perfect medium to become the Roblox for adults.
Over the past year, we’ve seen countless examples of legendary herding amongst traders, chasing anything that moves and is buzzing on social media.
The phrase “stonks only go up” became a rallying cry for newly minted traders looking to make a killing in the market. Or die trying, because YOLO.
During the dot-com bubble of the late 1990s, yahoo message boards were the outlet of choice to share “can’t lose” ideas. Today the setting has shifted to reddit message boards, with “r/wallstreetbets” being the most popular.
I’m not sure how it all started, but in recent weeks GameStop (a video game retailer, fittingly) increasingly became the board’s most popular name, with a call to defeat the “evil villain” hedge funders who were heavily short the stock.
And boy did it work, creating a mania to rival all manias.
GameStop was up 93% today alone and is up 685% since the start of the year. Its dollar volume today exceeded all other issues, higher even than the $2.4 trillion Apple.
Fundamentals be damned, as GameStop has been losing money and expected to continue to do so with revenues on the decline. The only thing thing that matters in the short run is supply and demand, and demand for shares has been skyrocketing.
Throwing fuel on the fire, famed investor Chamath Palihapitiya entered the fray today with the following tweet…
The Winklevoss twins of Facebook/Crypto fame chimed in as well…
And to top it all off, Elon Musk expressed his support, sending the stock to another level in after hours trading…
The result: at a market cap of over $15 billion, GameStop is now more than 12x higher than the start of the year.
One hedge fund that had a large short position has already needed a bailout (from none other than Steve Cohen and Ken Griffin), and there may be more to come.
Seeing the fruits of their labor in GameStop, Reddit traders quickly set their sights on other highly shorted names including Virgin Galactic and Bed Bath & Beyond. And it’s working like a charm. The 10 most heavily shorted names in the Russell 3000 at the start of the year are up an average of 129% year-to-date.
Naturally, the retail traders are basking in their glory.
And so the battle lines are drawn: the proletariat reddit traders against the hedge fund bourgeoisie.
How will it all end? Who will win?
No one knows. It depends on moves that have yet to be made in a multi-player game that is markets.
But I’ll never forget the day the stock market became a video game. This is one for the history books.
To sign up for our free newsletter, click here.
Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.